On Thursday, Senators Carper (D-DE) and Alexander (R-TN) introduced a bill to amend the Clean Air Act to address the impact of a federal court’s July 2008 vacature of The Clean Air Interstate Rule (CAIR). The bill would codify CAIR through the end of 2011 then overhaul the trading programs for both the Acid Rain Program and the NOx Budget Program, effectively tightening the caps. The bill would also mandate a 90% reduction in mercury emissions from power plants through the use of control technology.
Acid Rain Program
Under the bill, all vintage 2009 and prior SO2 allowances would retain their full value, and as such can be submitted on a 1:1 basis of allowances to emissions. For vintage 2010 and 2011, however, two allowances must be submitted for every ton of SO2.
Beginning 2012, the bill revises the SO2 Cap, reducing it to the following schedule:
| Calendar Year | SO2 Cap |
| 2012 – 2014 | 3.5 Million tons |
| 2015 – 2017 | 2.0 Million tons |
| 2018 – 2020 | 1.5 Million tons |
| 2021 – | 1.5 Million tons or less* |
(*: EPA has the discretion to lower the cap as necessary to protect human health.)
The distribution of these allowances would be based on the pro rata share of each existing account.
The bill would continue the allowance auction process, as well. From 2012 – 2017, the same quantity of allowances will be auctioned as in 2011. Beginning 2018, the number of allowances auctioned shall increase by 10% each year.
NOx Trading Program
The Seasonal NOx trading program as amended by CAIR will remain in place.
However, the Carper-Alexander bill will further shave the cap for sources under the annual NOx allowance program. For Annual NOx, the US is broken down into two Zones, a Zone 1 State defined as DC, ALA, AR, CT, DE, FL, GA, IL, IN, IA, KY, LA, ME, MD, MA, MI, MN, MS, MO, NH, NJ, NY, NC, OH, PA, RI, SC, TN, TX, VT, VA, WV, and WI. Zone 2 States are those within the 48 contiguous State that are not in Zone 1.
Beginning 2012, the Annual NOx Cap will be reduced to the following schedule:
| Calendar Year | Zone 1 State | Zone 2 State |
| 2012 – 2014 | 1 .39 Million tons | 510,000 tons |
| 2015 – 2019 | 1.30 Million tons | 320,000 tons |
| 2020 – | 1.30 Million tons | 320,000 tons or less* |
(*: EPA has the discretion to lower the cap as necessary to protect human health.)
Previously Banked Allowances prior to 2012 can be used for compliance in Zone 1 States. Auctions will begin in 2014 and increase by 10 % each calendar year.
The bill has been referred to the Senate Environment and Public Works Committee, on which Sen. Carper serves as the Chairman of the Clean Air and Nuclear Safety Subcommittee. Hearings on the bill are likely to be scheduled soon.
For more information on the bill, you can click HERE. If you have any questions regarding how the draft bill may impact SO2 or NOx trading markets, or to transact in these markets, please contact Evolution Markets’ Emissions Trading Group at: +1 914.323.0255 or emissions@evomarkets.com.